Tesla Probing All-Time High Despite Deep Skepicism

Tesla Inc. (TSLA) dodged a bullet in the first quarter, reporting a Q1 2020 profit of $1.24 earnings-per-share (EPS), beating estimates by a hefty $1.45. The Shanghai Gigafactory was closed for two weeks during the quarter due to the coronavirus outbreak while the Fremont, California plant shut down in March. The unexpected profit overcame both of those obstacles, prompting a strong buy-the-news reaction.

Tesla Balance Sheet Issues

The electric vehicle manufacturer declined to provide net income or free cash flow guidance during the April earnings presentation, two metrics that are needed to evaluate Tesla’s performance accurately, due to heavy cash burn and high debt levels. In addition, the Fremont plant didn’t reopen until mid-May, adding to anxiety about second-quarter performance. On the flip side, the company just reported record sales in China, countering the continued drag of slumping United States and European revenue.

David Einhorn, head of Greenlight Capital, questioned CEO Elon Musk about the Q1 results, sarcastically commenting “I will continue to be left wondering if not only your accounts receivable are suspect, but your income statement as well”. He points out apparent inconsistencies in the SEC quarterly filing, which he says omit the negative impacts of the lower average selling price, factory shutdowns, interruption costs, margin compression, and currency factors.

Wall Street and Technical Outlook

Wall Street analysts are evenly divided on Tesla’s outlook, with 8 ‘Buy, 9 ‘Hold’, and 11 ‘Sell’ recommendations. The broad distribution of price targets highlights widely conflicting opinions, with a low of $246 and a street high of $1250.  The stock is now trading less than $250 below the high target and nearly $1000 above the low target. All in all, this disagreement translates into an excessive market risk that many investors may wish to avoid.

The stock’s price action has been phenomenal so far in 2020, with a 600-point decline from February high at 969, followed by an equal-sized rally into June. It broke out after completing the round trip but has made little progress so far, consolidating around the first-quarter peak. Accumulation and relative strength readings are solid as a rock, despite mixed analyst calls and skepticism from market insiders, raising odds for even higher prices in the coming weeks.